Potential franchisees should consider the facts behind the figures contained in franchise prospectuses, writes Simon Robinson, Account Manager at the full service communications agency Quantum PR.
"As part of the wide range of PR and marketing services we provide to franchise operators, we help businesses draft and design their franchise prospectuses.
A great deal of effort goes into this process in a bid to ensure that would-be investors gain a clear understanding of the business and its proposition and that all of the content is presented in an easy-to-understand and concise manner.
Despite these efforts, we have found that many prospective franchisees use the fixed financials – including the initial capital outlay as well as ongoing fees – which are usually contained towards the back of the prospectus, as the main differentiator between rival franchise operators’ propositions.
While this is perhaps understandable, we would encourage investors not to consider these figures in isolation as they may only tell half the story. The cheapest option could be cheapest for a reason and may not necessarily provide the best value for money.
So what should investors keep an eye out for when assessing a franchise offering? Here are five top tips to help them make an informed decision.
1a: What you get for your fee #1 – the tangibles
Would-be franchisees should make sure they know exactly what and how many tangible materials they will receive for their franchise fee. This could include promotional leaflets, name badges, uniforms, start-up stock and so on. If the prospectus does not contain fixed figures for these materials be sure to ask for them.
1b: What you get for your fee #2 – the intangibles
What kind of ongoing training, support and guidance is provided by the franchisor? Franchisees moving into an unfamiliar industry can benefit enormously from the expert advice and assistance of their franchisor. They may wish to make sure that this resource is readily available and they are not simply left to their own devices.
2: How the franchise works
It may seem simple but some franchise prospectuses do not make it clear how the franchise works and what the day-to-day requirements of the franchisee are. Potential franchisees should make sure they have a clear understanding of their role; for example, is it more hands on or managerial?
3: Up-to-date context
Does the prospectus give any context to the franchise proposition? What are the general trends of the industry in which it operates? Is the market expanding or contracting? What are the latest consumer trends? How competitive is the industry? All of these questions may affect the profitability and ultimately the success of the franchise.
4: Track record
The number of franchise territories a franchisor operates at any one time is not necessarily an effective measure of success. What is more important is franchise retention and the rate of year one ‘churn’. Put simply, how many franchises fail and are re-sold each year? This will give an indication of the support available, the strength of the proposition and your chance of success.
5: PR and marketing
What promotional activities will you receive, either directly in the territory you have purchased or indirectly through nationwide, brand-building PR efforts? Both will help to connect you with end users, helping to boost your profits."